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Wednesday, 30 June 2010

Budget Challenge 2010-11

I used to spend less than $50,000 a year on our family 'living expenses' - managing to save the rest of my salary via salary sacrifice into superannuation and paying interest on my margin loan investment borrowings. However, I haven't been following a strict budget for the past couple of years, and despite having more salary coming into my bank account each month (due to the reduced cap on annual salary sacrifice into superannuation) I seem to be running short of cash each month. That probably party due to the interest rate on my margin loans increasing substantially while the dividend income has dropped, but I suspect I'm also overspending on 'discretionary' items each month. Plus some basic costs (such as utilities) have risen faster than income recently.

So, I've decided to challenge myself to stick to a formal budget during the 2010/11 financial year, which starts tomorrow (1 July). Aside from only spending according to 'the plan', the only big change will be to cut out my spending on junk food and slash my consumption of diet coke - both of which will fit in with my other goal of losing weight and sticking to a healthy diet.

My monthly budget for 2010/11 is as follows:

INCOME
Net salary income............$4750

EXPENSES
Homeloan and childcare..[1]..$1300
Margin loan repayments..[2]..$ 850
Margin loan var interest[3]..$ 190
Savings plan deposits........$ 200
Petrol.......................$ 150
Car running costs............$ 85
Grocery shopping etc.........$ 850
Medical and dental...........$ 400
Rates/water/electric/mob ph..$ 250
Uni fees and textbooks.......$ 150
Computer expenses............$ 65
Gifts........................$ 30
Income insurance.............$ 80
Misc.........................$ 150

Notes:
[1] DW contributes an equal amount towards childcare costs and mortgage costs (interest only on home on rental property loans) and our rental income covers the balance on the monthly mortgage costs.
[2] I want to pay off some of my margin loan principal during the year which will offset the capitalised interest prepayment next June.
[3] I fix most of my margin loan balance each year and pre-pay 12 months worth of interest each June, so this amount is for the monthly interest on the remaing variable loan balance.
[4] Piano and Judo lessons, school costs etc.

Excluding the margin loan interest and repayments, and the savings plan deposits, the 'living expenses' part of this budget comes to $3,510 a month, or $42,120 pa. Adding in DWs homeloan and childcare monthly contribution of $1,300 brings our total household 'living expenses' budget up to $4.810 a month, or $57,720 a year. I'll track the actual monthly expenses against this budget and see how things go - I suspect I've forgotten a few 'ad hoc' items and that some categories will be hard to keep within budget. I may look into using Mint's free budget software to track my data, otherwise I'll use my old Quicken application. Hopefully this year's annual salary review will provide some slack.

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Thursday, 24 June 2010

Bought Some Elders Shares

Despite swearing I'd never directly invest in shares again (have spent many tedious hours collating my paperwork to work out the capital gains figures for last years tax return - I hate DRPs, share takeovers for script, splits, demergers, bonus issues, SPP etc. - especially when they all happen to the same stock holding over a decade or more!) I couldn't resist buying $5,000 worth of Elders (ELD) shares this morning. Yesterday's "shock announcement" that Elders now expects to make a loss of around $9m this FY instead of the previously projected $45m profit, saw the share price drop 44% yesterday, and another 10% or so this morning before steadying. The CEO made a point of highlighting a cost-cutting process is underway, with a 10% cut in the workforce planned - some top executives were already given the boot this week. The cuts are expected to save $45m a year (although of course the current year will now be impacted by the extra costs of cost-cutting!), which should help the company return to profitability. The CEO also pointed out that the company has $100m cash reserves, so it isn't "going broke" just yet. At the current share price (around 41c) Elders is valued at only $200m, so the cash reserve is considerable. However, the debt to equity ratio is around 250%.

The long-term price chart shows just how "cheap" Elders is at the moment:



Either it will go belly-up (or be taken over at a bargain basement price), or it manage to cut costs and return to profitability. If it manages to make annual profits of $50m again any time soon, then the share price could easily triple. A purely speculative triple-or-nothing sort of investment play. At least it gives me something to watch on the stockmarket - my large parcel of IPE shares is going nowhere fast - stuck around 25c a share when the "book value" of the shares is apparently around 50c. Until market confidence returns, I don't expect the IPE price will rise.

Subscribe to Enough Wealth. Copyright 2006-2010

Rudd for ex-PM

In a surprise move, some Labor factions have banded together to convince Julia Gillard to challenge Kevin Rudd for leadership. It's very unusual for a Prime Minister to be challenged - especially during the first time in office after a "landslide" victory and starting out with record-breaking high approval levels. It looks like too many Labor back-benchers have realised that their jobs are on the line as Rudd's approval ratings slide and Labor's primary vote in recent polls has reached record low levels.

I guess that Rudd will get dumped tomorrow - even if he currently "has the numbers" by a small margin, the fact that he has been challenged will make it even harder to retain credibility and regain public support in the six months or so remaining before the next Federal election in Australia.

It would also be very hard to keep Gillard as deputy leader after a challenge (and having repeatedly vowed she wasn't interested in the leadership and would support Rudd into the next election).

If Gillard does win she will enjoy a "honeymoon" period of popularity, and will also get some support simply because she would be the first female PM of Australia if Labor wins the next election. However, with parliment probably not sitting again before the election once it rises this week, she won't have a chance to showcase her strengths as a parlimentary speaker.

There might also be disadvantages for Labor in making Julia Gillard the leader - she was intimately involved in all the decisions that are now proving problematic (dumping the CPRS legislation, strategies for reducing the flow of illegal migrants, rushed and poorly controlled stimulus spending on school construction and home insulation, poor implementation of few aspects of the Henry Tax review after sitting on the report for six months, etc). And although Tony Abbott can be portrayed as an old-fashioned "traditional values" throw-back to the policies of the Howard years, Julia may not be the right person to attack the pro-female credentials of a family man that has raised four daughters.

Whether or not there is a leadership change tomorrow morning, this challenge has made the upoming election campaign more interesting.

Subscribe to Enough Wealth. Copyright 2006-2008

Sunday, 13 June 2010

The allure of gold

Although I don't think Gold is likely to be a good investment at current prices (I bought a few ounces several years ago when the price was around $500 and ounce, so it now appears a bit pricey at almost $1500 an ounce) I just bought a dozen of the new 2010 0.5 g "Mini Roo" 99.99% gold coins from the Perth Mint. I had a couple of gift cards that were due to expire in a few months, and I was at a loss of what to use them for. I had previously used a similar gift card to 'donate' money to myself via Paypal, which allowed me to "cash in" the cards for almost face value, but the latest cards didn't work for making donations. I'd also used such cards in the past for buying petrol and groceries, but the two main supermarkets chains (Woolworths and Cols) no longer accept these cards, nor do the related petrol chains.

So buying gold coins seemed a reasonable use for the cards. I could have bought a single half ounce bullion bar, but I decided to buy the Mini Roo coins even though the value of the gold in these coins is only about half what I'd get buying a gold bullion to the same value. Mint condition legal tender gold coins are always priced at about twice the value of the gold content, and at a much higher multiple of their face value as 'legal tender' (the 0.5 g gold coins I bought cost $49,95 each, contain gold worth around $34 at the current spot price, and have a face value of only $2!).

I decided to buy the mini roo coins as they are cute (only 11.6 mm in diameter and 0.7 mm thick) and I can give them to DS1 and DS2 and Christmas gifts (I'm sure the boys will like having some real "pirate treasure" gold coins - although I'll have to make sure they don't lose them!). I'll probably also add some of them to my stash of end-of-the-world emergency supplies. The coins are easily recognisable as being solid gold and government issued, so they should be easier to trade than bullion bars in a post-apocalypse scenario. Most likely they'll just sit around and eventually for part of the family fortune. In the long term gold may at least keep it's current value, so it's probably no worse than having cash in the bank and paying taxes on the interest.



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Monday, 7 June 2010

MAstron Update: One subject done, five to go

I sat the "open book" final exam for my Modern Astrophysics course on Saturday/Sunday (the exam questions were put online at 10am on Saturday and we had 24 hourse to complete our answers and email our submission to the lecturer using our secure JCU email account). I downloaded and had a quick read through the ten questions on Saturday morning when I brought DS1 back from his piano lesson, and then I droppped off the family at the nearby shopping mall so they could spend the afternoon visiting the library and doing some shopping while I had some "quiet time" at home to work on my examination paper.

The good thing about an open book exam is that you don't have to memorise a whole lot of equations and constants for the exam (they're a quite a lot of constants and conversion factors used in astrophysics!), but on the downside everyone will probably do quite well as they can all look things up in the textbook, tutorial solutions and lecture notes. So I was hoping to be able to double and triple check all my solutions in order to get a good result. Since a lot of the questions were simply variations of the questions we had already done in the tutorial assignments, I expect most of the other students will "ace" this exam.

However, it turned out that the exam was a lot longer than I had expected (the ten questions had multiple parts and in total the paper seemed equivalent to about three of the normal weekly tutorial assignments - which usually took me 3-4 hours each week to complete, plus a couple of hours double checking the working before sending each assignment in). I started working on the exam questions when I got home around 2pm, and worked straight through (apart from a short dinner break) until I completed the last question just before 5am. The final question on how relativistic time dilation affects the observed half-life of muons travelling at 0.99c was a bit of a worry, as I got two different solutions depending on how I calculated the gamma factor (one answer was obviously incorrect, but I couldn't see why!) At 5am I wasn't in any condition to re-read the chapter on relativity and work out where I was going wrong, so I thought about catching a couple of hours sleep and rechecking the calculations before the exam submission had to be emailed prior to 10am on Sunday. In the end I decided to just call it quits, email my work in "as is" and go to bed.

As I had previously picked up on a couple of silly calculation errors when I was checking through my answers along the way, I expect I'll lose several marks in the first nine questions, as well as possibly getting very few (or no) marks for Q10. I'm guessing a raw mark of 80%-85%.

The exam cover sheet also reiterated that student marks will be scaled so that there aren't "too many" HD and D grades given out. Oh well, all I can do now is wait four weeks until the final grades are published online.

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Friday, 4 June 2010

Net Worth Update: May 2010

Sell in May and go away - I wish!

My stock portfolio value decreased significantly during May thanks to the EU soverign debt crisis, which meant our SMSF account also dropped considerably.

Our real estate investments rose in estimated value, but the estimates are getting less reliable and more out of date due to recent changes in the available suburban sales figures.

I think I'll stop updating my portfolio figures daily from the end of this financial year (30 June), and move to only recording end-of-month portfolio values and annual real estate valuations (based on the quarterly dept of housing regional price data, which I use for my annual rental property rent reviews).

These days my gearing levels aren't so high that I need to watch out for margin calls every time the market suffers a correction, so checking my portfolio values each day isn't really necessary.

I think I'll also start recording my expenses again, but only recording monthly totals by category (so I can track spending and saving against our budget), rather than trying to record every single expense in Quicken like I used to.


Assets___________$ Amount______$ Diff_____% Diff
Stocks____________$16,629____-$35,221___-67.93 %
Retirement_______$326,665____-$15,081____-4.41 %
Properties_______$881,704_____$15,544_____1.79 %

Debts____________$ Amount_____$ Diff_____% Diff
Home Mortgage(s)_$364,114________-$38____-0.01 %

Net Worth________$860,883____-$34,720____-3.88 %


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Thursday, 3 June 2010

Wait and you shall receive (and pay)

After waiting for more than six months the Personal Solar Telescope (PST) with double-stack hydrogen-alpha filter finally arrived from the US. As the price listed on the package was US$999 the Australian Customs held it upon arrival and I had to fill in three forms (one to get registered as an 'importer', one to register the US company that sent me the goods as an 'exporter', and another one providing details of when the goods were purchased and their cost). Any items that are valued at less than A$1000 are not assessed for duty/GST, and when I checked on my original order receipt I found that it had actually cost me US$999 minus a $50 'rewards' rebate from Scope City. Looking up the exchange rate (from the ATO website) that applied on the day I paid via Paypal (last November), the price worked out to be just under $1000. I filled in those details on the valuation form and also sent in a copy of my original payment receipt...

It turned out that I had to pay around $250 in GST and fees (a 'handling fee' of $50 is charged by customs!) - apparently they used the total payment amount (which included the $500 I'd paid for the Meade DSI CCD that had previously arrived last December - without any GST being payable) when calculating the GST liability. As far as I could tell from the information on the Customs website the two amounts could have been assessed individually, since they arrived several months apart (it says that if several items arrive within a few days of each other they can be treated as one order). But I probably should have placed two separate orders for the items, rather than paying for both at once (even though the PST was on six months back-order!). Next time I'll know better and make sure I order items individually unless they are going to be shipped together.

I'm still happy though - even with the $150 airfreight charge and $250 GST and customers fee the total price is about half what I'd have paid if I went to a local telescope dealer. Either the local telescope dealers apply more than the usual 100% mark-up on the wholesale price, or else they don't have any relationships with the suppliers and are actually buying their stock retail from US dealers.

Now I just have to wait for the weather to clear up enough to see the sun - it's been raining in Sydney for the past three weeks...

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